AAVE: Will the $50mln buyback plan repeat the 50% price surge?

Key Takeaways 

Why has Aave made token buyback official?

The team said that the trial initiative was a “strong success” in improving AAVE value accrual. 

Will it lift the token above $200 again? 

Yes, under a positive, broader market sentiment, the deflation plan could boost AAVE in the long run.

DeFi lending giant Aave [AAVE], has unanimously approved the creation of a $50 million per year buyback program.

The move followed what the project called a “strong success” after a pilot test initiated in May, designed to improve the tokenomics of the AAVE token. 

According to the plan, the team would eye $250K-$1.75 million in weekly AAVE purchases, based on protocol revenue and other factors. 

Source: Aave DAO

There are two additional steps before the proposal can be enforced. That being said, AMBCrypto evaluated the pilot test to gauge the potential impact of the latest update. 

AAVE buybacks and potential impact

Since May, the initiative has bought over 94K AAVE tokens and spent over $22 million in the process. The team added 20.1K AAVE in May, marking the largest monthly purchase during the trial program. 

Source: Blockworks

During the same month, AAVE posted price gains of over 50%, partly influenced by the broader recovery in Q2. From July to October, the team acquired about 10K AAVE on a monthly average. 

The deflation move and broader recovery lifted AAVE to $385 by August. However, Q4 headwinds dragged AAVE below $200 despite the ongoing buyback. 

Beyond deflation and market sentiment, AAVE’s value also has a strong positive correlation with Ethereum [ETH]. 

ETH correlation drives AAVE swings

Source: Blockworks

The chart showed that during ETH rallies, AAVE pumped even harder. However, during pullbacks, AAVE also dumped harder. 

As the barometer of the broader DeFi ecosystem, ETH’s momentum also trickles down to the sector’s outliers, including AAVE. Perhaps, an ETH rebound could also lift AAVE if the above correlation extends. 

That being said, the altcoin has been under selling pressure since the October flash crash.

Exchange inflows pressure price

According to CryptoQuant, the Exchange Netflow surged to a seven-month high, with approximately 10,000 AAVE sent to platforms for sell-off on a weekly basis last month. 

Source: CryptoQuant

Unless the exchange selling pressure tapers, the AAVE price could remain subdued in the short term. 

Overall, AAVE, like the broader market, was under selling pressure. However, the potential scaling of its deflation program could boost its value in the long run.